Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our CEO and CFO have concluded that as of December 31, 2024, the disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2024, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). As a result of this assessment, management concluded that, as of December 31, 2024, our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
In addition, Ernst & Young LLP has issued a report on our internal control over financial reporting as of December 31, 2024, and its report appears below.
Remediation of Material Weaknesses
As disclosed in Part II Item 9A Controls and Procedures in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we identified two material weaknesses in internal control related to (1) the design of information technology general controls (ITGCs) in the areas of user access and program change-management over certain information technology systems related to revenue, veterinary invoice expense, accounts receivable, reserve for veterinary invoices and deferred revenue in our subscription business segment; (2) processing transactions performed by an unaffiliated general agent within our other business segment.
During 2024, management implemented our previously disclosed remediation plan and completed our testing of the operating effectiveness of the implemented controls and found them to be effective. As a result, we have concluded the two material weaknesses have been remediated as of December 31, 2024.
Changes in Internal Control
Except for changes relating to remediation of the material weaknesses discussed above, there have been no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(f) or 15d-15(f) of the Exchange Act during the period covered by this Annual Report on Form 10-K that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Trupanion, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Trupanion, Inc.’s internal control over financial reporting as of December 31, 2024 , based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Trupanion, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024 , based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023 , the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2024 , and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated February 27, 2025, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Seattle, Washington
February 27, 2025
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Item 9B. Other Information
Rule 10b5-1 Plan
On November 29, 2024, Margi Tooth, our President, Chief Executive Officer and a member of our Board of Directors, adopted a trading plan intended to satisfy Rule 10b5-1 to sell up to 2,294 shares of Trupanion, Inc. common stock and exercise and sell up to 40,000 options to purchase shares of Trupanion, Inc. common stock over a period ending on December 17, 2025, subject to certain conditions.
No other officers nor directors of the Company adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as defined in Item 408(a) of Regulation S-K, during the three months ended December 31, 2024.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 11. Executive Compensation
Information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 13. Certain Relationships and Related Transactions and Director Independence
Information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report.
Item 14. Principal Accountant Fees and Services
Information required by this item is incorporated herein by reference to our Proxy Statement with respect to our 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
We have filed the financial statements listed in the Index to Financial Statements as a part of this Annual Report on Form 10-K.
(a)(2) Financial Statement Schedules
Schedule I Condensed Financial Information of Registrant
No other financial statement schedules have been provided because the information called for is not required or is shown either in the financial statements or notes thereto.
(a)(3) Exhibits
The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference.
Exhibit Incorporated by Reference Filed/Furnished
Number Exhibit Description Form File No. Exhibit Exhibit Filing Date Herewith
3.1
Amended and Restated Certificate of Incorporation of Trupanion, Inc.
8-K 001-36537 3.1 6/12/2023
3.2
Amended and Restated Bylaws of Trupanion, Inc.
8-K 001-36537 3.2 6/12/2023
4.1
Description of Capital Stock
X
4.2
Form of Common Stock Certificate.
S-1 333-196814 4.1 6/16/2014
10.1+
Form of Indemnity Agreement.
S-1 333-196814 10.1 6/16/2014
10.2+
2007 Equity Compensation Plan and forms of stock option agreements and exercise notices, restricted stock notice agreement and restricted stock agreement thereunder.
S-1 333-196814 10.2 6/16/2014
10.3+
2014 Equity Incentive Plan and forms of stock option award agreement, restricted stock agreement and restricted stock unit award agreement thereunder.
S-1 333-196814 10.3 6/16/2014
10.4+
2014 Employee Stock Purchase Plan.
S-1 333-196814 10.4 6/16/2014
10.5+
2024 Equity Incentive Plan and forms of stock option award agreement, restricted stock agreement and restricted stock unit award agreement thereunder
S-8 333-380069 99.1 6/7/2024
10. 6 †
Agency Agreement between Omega General Insurance Company and Trupanion Brokers Ontario, Inc., effective January 1, 2015.
10-K 001-36537
10.13 2/24/2015
10. 7 †
Fronting and Administration Agreement between Wyndham Insurance Company (SAC) Limited and Omega General Insurance Company, effective January 1, 2015.
10-K 001-36537 10.14 2/24/2015
10. 8 †
Quota Share Reinsurance Agreement between Wyndham Insurance Company (SAC) Limited and Omega General Insurance Company, effective January 1, 2015.
10-K 001-36537
10.15 2/24/2015
10 . 9
Quota Share Reinsurance Agreement between Wyndham Insurance Company (SAC) Limited and Omega General Insurance Company, effective July 1, 2020.
10-K 001-36537 10.23 2/14/2020
10. 10
Addendum #11 to Quota Share Reinsurance Agreement between Wyndham Insurance Company (SAC) Limited and Omega General Insurance Company, effective January 1, 2024.
10-K 001-371285 10.9 2/27/2024
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10.1 1
Addendum #1 to Fronting And Administration Agreement between Omega General Insurance Company and Wyndham Insurance Company (Sac) Limited, effective January 1, 2024.
10-K 001-371285 10.1 2/27/2024
10.1 2 +
Compensation Program for Non-Employee Directors of Trupanion, Inc, as amended on November 7 , 2024 .
X
10.1 3 +
Form of Consulting Agreement.
8-K 001-36537 10.1 4/4/2023
10.1 4 +
Form of Separation Agreement.
8-K 001-36537 10.2 4/4/2023
10.1 5 +
Trupanion, Inc. Severance and Change in Control Plan effective July 28, 2023.
10-Q 001-36537 10.2 8/4/2023
10.1 6 +
Offer Letter dated as of August 24, 2023, by and between the Company and Fawwad Qureshi.
8-K 001-36537 10.1 9/6/2023
10. 17
Strategic Alliance Agreement, dated as of October 26, 2020 by and between Trupanion, Inc. and Aflac Incorporated.
8-K 001-36537 10.2 10/29/2020
10. 18
Shareholder Agreement, dated as of October 26, 2020 by and between Trupanion, Inc. and Aflac Incorporated.
8-K 001-36537 10.3 10/29/2020
10.1 9 †
Credit Agreement, dated as of March 25, 2022, by and among Trupanion, Inc., Piper Sandler Finance, LLC, as administrative agent, and the lenders party thereto.
10-Q 001-36537 10.1 4/29/2022
19.0
Amended and Restated Insider Trading Policy
X
21.1
Subsidiaries of the Registrant.
X
23.1
Consent of independent registered public accounting firm.
X
24.1
Power of Attorney (reference is made to the signature page hereto) .
X
31.1
Certification of Principal Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
31.2
Certification of Principal Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
X
32.1*
Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
32.2*
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
X
97.1
Compensation Clawback Policy
10-K 001-371285 97.1 2/27/2024
101.INS XBRL Instance Document - the instance does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH Inline XBRL Taxonomy Extension Schema With Embedded LinkBase Documents. X
98
104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) X
+ Indicates a management contract or compensatory plan or arrangement.
† Registrant has omitted portions of the referenced exhibit pursuant to a request for confidential treatment under Rule 24b-2 promulgated under the Exchange Act. The omitted portions of this exhibit have been filed separately with the SEC.
* This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
99
Item 16. Form 10-K Summary
None.
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Seattle, state of Washington, on this 27th day of February, 2025.
TRUPANION, INC.
By: /s/ Margi Tooth
Margi Tooth
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS , that each person whose signature appears below hereby constitutes and appoints Margi Tooth, Fawwad Qureshi and Chris Kearns, and each of them, as his or her true and lawful attorneys-in-fact, proxies and agents, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, proxies and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact, proxies and agents, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
101
Date: February 27, 2025 /s/ Margi Tooth
Margi Tooth
Chief Executive Officer
(Principal Executive Officer)
Date: February 27, 2025 /s/ Fawwad Qureshi
Fawwad Qureshi
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: February 27, 2025 /s/ Darryl Rawlings
Darryl Rawlings
Chairperson of the Board
Date: February 27, 2025 /s/ Max Broden
Max Broden
Director
Date: February 27, 2025 /s/ Jacqueline Davidson
Jacqueline Davidson
Director
Date: February 27, 2025 /s/ Paulette Dodson
Paulette Dodson
Director
Date: February 27, 2025 /s/ Richard Enthoven
Richard Enthoven
Director
Date: February 27, 2025 /s/ Murray Low
Murray Low
Director
Date: February 27, 2025 /s/ Betsy McLaughlin
Betsy McLaughlin
Director
Date: February 27, 2025 /s/ Howard Rubin
Howard Rubin
Director
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Schedule I - Condensed Financial Information of Registrant
Trupanion, Inc.
Condensed Statements of Operations and Comprehensive Loss
(Parent Company Only, in thousands)
Year Ended December 31,
2024 2023 2022
Expenses:
Veterinary invoice expense $ 290 $ 253 $ 4,144
Other cost of revenue 347 240 2,340
Technology and development 1,934 1,507 4,930
General and administrative 3,915 5,345 16,346
New pet acquisition expense 1,422 806 9,351
Depreciation and amortization 941 494 289
Total expenses 8,849 8,645 37,400
Gain (loss) from investment in joint venture 192 ( 237 ) ( 192 )
Operating loss 9,041 ( 8,882 ) ( 37,592 )
Interest expense 14,345 11,998 4,255
Other expense (income), net ( 16,303 ) ( 14,442 ) ( 8,047 )
Loss before income taxes and loss in undistributed earnings of subsidiaries ( 7,083 ) ( 6,438 ) ( 33,800 )
Income tax benefit 18,939 15,766 14,544
Loss in undistributed earnings of subsidiaries ( 21,489 ) ( 54,021 ) ( 25,416 )
Net loss $ ( 9,633 ) $ ( 44,693 ) $ ( 44,672 )
Other comprehensive income (loss), net of taxes:
Other comprehensive income (loss) of subsidiaries ( 3,015 ) 6,704 ( 9,378 )
Other comprehensive income (loss) ( 3,015 ) 6,704 ( 9,378 )
Comprehensive loss $ ( 12,648 ) $ ( 37,989 ) $ ( 54,050 )
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Trupanion, Inc.
Condensed Balance Sheets
( Parent Company Only)
(In thousands, except share data)
December 31,
2024 2023
Assets
Current assets:
Cash and cash equivalents $ 11,951 $ 10,994
Accounts and other receivables 1,194 1
Prepaid expenses and other assets 815 804
Total current assets 13,960 11,799
Restricted cash 25,406 22,963
Property and equipment, net 4,180 3,981
Intangible assets, net 5,869 5,808
Other long-term assets 12,415 12,540
Advances to and investments in subsidiaries 392,898 377,031
Total assets $ 454,728 $ 434,122
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable, accrued liabilities, and other current liabilities $ 1,488 $ 336
Long-term debt - current portion 1,350 1,350
Total current liabilities 2,838 1,686
Long-term debt 127,537 127,580
Deferred tax liabilities 1,057 1,106
Other liabilities 28 28
Total liabilities 131,460 130,400
Stockholders’ equity:
Common stock: $ 0.00001 par value per share, 100,000,000 shares authorized; 43,516,631 and 42,888,445 shares issued and outstanding at December 31, 2024; 42,887,052 and 41,858,866 shares issued and outstanding at December 31, 2023
— —
Preferred stock: $ 0.00001 par value per share, 10,000,000 shares authorized; no shares issued and outstanding
— —
Additional paid-in capital 568,302 536,108
Accumulated other comprehensive income (loss) ( 2,612 ) 403
Accumulated deficit ( 225,888 ) ( 216,255 )
Treasury stock, at cost: 1,028,186 shares at December 31, 2024 and 2023
( 16,534 ) ( 16,534 )
Total stockholders’ equity 323,268 303,722
Total liabilities and stockholders’ equity $ 454,728 $ 434,122
104
Trupanion, Inc.
Condensed Statements of Cash Flows
(Parent Company Only, in thousands)
Year Ended December 31,
2024 2023 2022
Operating activities
Net loss $ ( 9,633 ) $ ( 44,693 ) $ ( 44,672 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Loss attributable to investments in subsidiaries 8,707 39,184 19,331
Dividends from subsidiaries 12,782 14,837 6,942
Depreciation and amortization 941 494 289
Stock-based compensation expense 6,178 4,575 33,393
Other, net ( 395 ) 4,200 533
Changes in operating assets and liabilities 507 6,194 ( 166 )
Net cash provided by operating activities 19,087 24,791 15,650
Investing activities
Cash paid in business acquisition, net of cash acquired — — ( 15,034 )
Purchases of property, equipment, and internal-use software ( 1,201 ) ( 172 ) ( 516 )
Advances to and investments in subsidiaries ( 13,526 ) ( 87,198 ) ( 71,671 )
Other 2,157 1,586 ( 1,598 )
Net cash used in investing activities ( 12,570 ) ( 85,784 ) ( 88,819 )
Financing activities
Proceeds from debt financing, net of financing fees — 59,972 69,138
Repayment of debt financing ( 1,350 ) ( 1,225 ) ( 487 )
Repurchases of common stock — — ( 5,755 )
Proceeds from exercise of stock options 752 2,655 2,290
Shares withheld to satisfy tax withholding ( 2,519 ) ( 1,536 ) ( 4,359 )
Net cash (used in) provided by financing activities ( 3,117 ) 59,866 60,827
Net change in cash, cash equivalents, and restricted cash 3,400 ( 1,127 ) ( 12,342 )
Cash, cash equivalents, and restricted cash at beginning of period 33,957 35,084 47,426
Cash, cash equivalents, and restricted cash at end of period $ 37,357 $ 33,957 $ 35,084
1. Organization and Presentation
The accompanying condensed financial statements present the financial position, results of operations and cash flows for Trupanion, Inc. These condensed unconsolidated financial statements should be read in conjunction with the consolidated financial statements of Trupanion, Inc. and its subsidiaries and the notes thereto (the Consolidated Financial Statements). Investments in subsidiaries are accounted for using the equity method of accounting. Trupanion, Inc. received cash dividends from subsidiaries of $ 12.8 million, $ 14.9 million and $ 6.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. These cash dividends were recorded within Trupanion, Inc.'s other income and were eliminated within the consolidated financial statements of Trupanion, Inc.
Additional information about Trupanion, Inc.’s accounting policies pertaining to intangible assets, commitments and contingencies, stock-based compensation, stockholders’ equity, and income taxes are set forth in Notes 4, 8, 11, 12, and 16, respectively, to the Consolidated Financial Statements.
105
Compensation expense related to stock-based transactions, including employee and non-employee stock option awards, and restricted stock units is measured and recognized in the financial statements based on fair value. Effective January 1, 2023, we entered into an intercompany agreement with a non-insurance subsidiary whereby stock-based compensation costs are allocated to this entity. Stock-based compensation expenses of $ 27.3 million and $ 28.3 million were included within equity (loss) in undistributed earnings of subsidiaries within the Condensed Statements of Operations and Comprehensive Loss and in advances to and investments in subsidiaries in the Condensed Balance Sheets for the years ended December 31, 2024 and 2023, respectively. There was no impact to net income as a result of this intercompany agreement.
106